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Oct 9, 2018

IMF Cuts Forecast for Global Growth as Trade War Takes Toll I World Economic Outlook I IMF

World Economic Outlook

October 2018

Challenges to Steady Growth

The steady expansion under way since mid-2016
continues, with global growth for 2018–19 projected to remain at its
2017 level. At the same time, however, the expansion has become less
balanced and may have peaked in some major economies. Downside risks to
global growth have risen in the past six months and the potential for
upside surprises has receded.

Chapter 1:
Global Prospects and Policies

Global growth for 2018–19 is projected to
remain steady at its 2017 level, but its pace is less vigorous than
projected in April and it has become less balanced. Downside risks to
global growth have risen in the past six months and the potential for
upside surprises has receded. Global growth is projected at 3.7 percent
for 2018–19—0.2 percentage point lower for both years than forecast in
April. The downward revision reflects surprises that suppressed activity
in early 2018 in some major advanced economies, the negative effects of
the trade measures implemented or approved between April and
mid-September, as well as a weaker outlook for some key emerging market
and developing economies arising from country-specific factors, tighter
financial conditions, geopolitical tensions, and higher oil import
bills.

Chapter 2:
The Global Recovery 10 Years after the 2008 Financial Meltdown

This chapter takes stock of the global
economic recovery a decade after the 2008 financial crisis. Output
losses after the crisis appear to be persistent, irrespective of whether
a country suffered a banking crisis in 2007–08. Sluggish
investment was a key channel through which these losses registered,
accompanied by long-lasting capital and total factor productivity
shortfalls relative to precrisis trends. Policy choices preceding the
crisis and in its immediate
aftermath influenced postcrisis variation in output. Underscoring the
importance of macroprudential policies and effective supervision,
countries with greater financial vulnerabilities in the precrisis years
suffered larger output losses after the crisis. Countries with stronger
precrisis fiscal positions and those with more flexible exchange rate
regimes experienced smaller losses. Unprecedented and exceptional policy
actions taken after the crisis helped mitigate countries’ postcrisis
output losses.

Inflation in emerging market and developing
economies since the mid-2000s has, on average, been low and stable. This
chapter investigates whether these recent gains in inflation
performance are sustainable as global financial
conditions normalize. The findings are as follows: first, despite the
overall stability, sizable heterogeneity in inflation performance and in
variability of longer-term inflation expectations remains among
emerging markets. Second, changes in longer-term inflation expectations
are the main determinant of inflation, while external conditions play a
more limited role, suggesting that domestic, not global, factors are the
main contributor to the recent gains in inflation performance. Third,
further improvements in the extent of anchoring of inflation
expectations can significantly improve economic resilience to adverse
external shocks in emerging markets. Anchoring reduces inflation
persistence and limits the pass-through of currency depreciations to
domestic prices, allowing monetary policy to focus more on smoothing
fluctuations in output.

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